RAKUTEN HAS ‘BUY’ CALL ON MUHIBBAH

Research firm expects company to secure more noise barrier system contracts

RAKUTEN Trade Sdn Bhd has raised its earnings per share (EPS) forecasts for Muhibbah Engineering (M) Sdn Bhd’s financial years 2024 and 2025 by 41 and 43 per cent, respectively.

This follows Muhibbah Engineering’s remarkable financial year 2023 performance, which surpassed the research firm’s net profit forecast by 141 per cent.

“In the fourth quarter of financial year 2023, Muhibbah achieved a core net profit of RM45 million, contributing to a full-year core net profit of RM53 million, inclusive of its associate’s contributions.

“This performance was attributed to the improved performances of its divisions, such as

Marine Shipyard, Cranes, and Intelligent Automation, along with a better-than-expected recovery in Cambodian tourist traffic.”

The research firm expects Muhibbah to secure more contracts amid higher capital expenditure from Petroliam Nasional Bhd and start of infrastructure projects like the Penang Light Rail Transit project, which require noise barrier systems.

“This will enhance Muhibbah’s earnings predictability, as it enters a phase of increased profitability,” it added.

Rakuten said the company also stood to gain from the rapid earnings rebound of its associates through airports in Cambodia as tourist traffic steadily recovered.

“In the fourth quarter of financial year 2023, Cambodia’s airport passenger levels reached 40 per cent of the fiscal year 2019 level.

“We anticipate further recovery in passenger traffic, especially with the expected increase in Chinese tourist arrivals.

“It is worth noting that in financial year 2023, passengers from China accounted for only about 41 per cent of the level seen in financial year 2019.

Rakuten said Cambodian airports had raised the passenger service and aeronautical charges for passengers flying out of its three airports by at least 20 per cent since October last year.

“This increase partly offsets the loss of revenue and profit contribution from Siem Reap International Airport after the compensation exercise.”

It said the combination of these positive factors would drive earnings from its associates to unprecedented levels in financial year 2024 and beyond.

Rakuten has a “buy” call on Muhibbah with a higher RM1.14 target price.